8/28/2008 @ 3:00PM

Gray Is The New Green

Tom Casten has the money and the know-how to generate huge amounts of clean power without bothering with costly solar and wind energy.

West Virginia’s Kanawha River Valley is a gritty collection of slag piles, coal mounds and sooty mine shafts. It is also a showcase for clean energy. In the unincorporated town of Alloy, a 72-year-old silicon smelter owned by West Virginia Alloys is getting a $75 million heat recycling system. If it delivers what it promises, it will produce as much electricity as $300 million worth of giant windmills or $2.8 billion in solar panels–exclusive of energy credits.

Is it possible that in their hunt for low-carbon energy, environmentalists are barking up the wrong trees? Sun and wind power are indeed clean but expensive, in part because the sun doesn’t always shine and the wind doesn’t always blow. For its modest capital outlay the Alloy project is supposed to produce 357 million kilowatt-hours of juice per year. Solar cells (at least if installed in West Virginia) would pay a much lower dividend per dollar invested.

The Alloy project is the brainchild of Thomas and Sean Casten, the father and son duo who run Recycled Energy Development in Westmont, Ill. In early 2010 RED hopes to fire up a turbine that will capture the 1,500-Fahrenheit-degree heat coming off the silicon plant’s five arc furnaces and feed that electricity in a roundabout way back into the factory. West Virginia Alloys makes more silicon, 72,000 tons annually, than any other single site in the world, selling the glinty metal to manufacturers of everything from cosmetics to computer chips. This plant is already the lowest-cost producer of silicon in the world and, with the Castens’ technology, will save an additional 37% on its energy bills, which account for one-third of its operating costs.

The idea that you can wring value out of waste heat has a long history. Thomas Edison sold heat from the exhaust of the world’s first power plant on Pearl Street in Manhattan, using it to warm nearby buildings. You do the same sort of thing when you turn on a car heater. Space heating is the easy application for industrial waste heat. But with some engineering finesse the discarded Btu can also be used to turn turbines that produce high-quality electric energy.

Why isn’t more of this country’s industrial waste heat put to use? The space heating application is geographically limited; customers have to be within several miles of the heat source. As for dynamos running on scrap heat: Cheap energy and grid regulations have discouraged such projects. But now the “gray power” concept is back on the table. “We’re at the start of something that should have been done long ago,” says Tom Casten, 65, RED’s chairman. Sean, 37, is chief executive.

The Castens are armed with Department of Energy studies that suggest the U.S. could reduce its CO2 emissions by 20%, the equivalent of taking all the cars and light trucks off the road, by recycling industrial waste heat and building smaller fossil-fuel “cogeneration” plants sized to provide enough by-product heat for each factory or office park. Tom Casten goes even further, envisioning small power plants spread out across America for homes and businesses. By capturing waste heat, these power plants would operate at above 90% efficiency, Casten says, compared with the current U.S. power grid that operates at 33%, the same as it did 50 years ago.

Doubters exist on the pragmatics of cogeneration of heat and electricity for the general population. “That’s a little bit of a fairy tale, but it does hold a grain of truth,” says John Parsons, executive director for mit’s Center for Energy & Environmental Policy Research. Parsons says cogeneration could work for high-density apartment blocks but isn’t reasonable for single-family homes.

Working against electricity production from waste heat is the fact that most states still have utility-friendly laws that prohibit nonutilities from selling power directly to others without going through the grid. Bilateral agreements to buy and sell power can be done across the grid, but producers such as RED must surrender roughly a third of the selling price to a utility for transmission fees, even if it’s just across the street. New legislation that democratizes the world of power supply is bubbling up, however. Two years ago New Jersey began, on a limited basis, allowing commercial neighbors to sell power to one another outside of the grid. “We will either move the world to local generation or we will suffer the consequences of global warming,” says Tom Casten.

The Castens founded RED in 2006 after seeing two similar, and lucrative, companies the elder Casten helped develop, Trigen Energy and Primary Energy, bought out from under him. He took Trigen public in 1994 on the New York Stock Exchange, where it traded until France’s Suez launched a hostile takeover bid in 1999 that secured the 47% of Trigen it didn’t already own for $138 million. Trigen operated small turbine power plants that supplied power and waste heat to customers for winter warmth and hot water. Casten’s time at Primary Energy, which pursued the same business as RED, ended when the company’s equity backers sold the company to Canada’s Epcor in 2006 for $330 million. Casten did well on those deals but felt he never got to see either to the heights he’d envisioned. He wants to take RED public one day, while still maintaining control.

To that end, he’s lured Boston’s Denham Capital as a partner to fund his projects without sacrificing any equity in RED. Denham, which manages $4.3 billion from investors including Bill Gates and Harvard University, will share dividends in the projects with RED and expects a return in the 15%-to-20% range, according to Riaz Siddiqi, a Denham managing partner. “It’s been fascinating, over the years, to watch Tom be so faithful to his beliefs on efficiency and how he makes money on that,” Siddiqi says. Sean Casten brings his own experience as a trained molecular engineer and clean-energy consultant with Arthur D. Little. “I was into cellulosic ethanol before it was cool,” says Sean.

Denham has staked RED with $500 million (and the company is hoping to borrow another $1.5 billion) to finance ventures like the one at West Virginia Alloys. At Alloy RED will sell the power to the public grid at 6 cents per kilowatt-hour and share the revenue with Denham Capital and West Virginia Alloys. The silicon maker will continue buying most of its 135 megawatts of power drawn from a hydroelectric plant eleven miles upriver at the unbeatable price of 3 cents per kilowatt-hour. The extra revenue from RED will cut its electricity budget by 37%.

It’s foolish not to tap the plant’s furnaces, which belch heat as promiscuously as a raging bonfire. The company warns visitors not to wear polyester, because it could easily melt during a walking tour. The furnaces are vented when needed and are water-cooled by 2-foot-wide radiator pipes that dump their heat outside in three rows of 23 loops, each 100 feet high. RED will use this heat to run steam turbines. One of those turbines, once powered by coal, is now sitting unused at the site. It is so old that some of its imported pipes carry the swastika of Hitler’s Germany.

West Virginia Alloys executive Arden Sims is champing to seize on these cost savings and has plans to open a shuttered plant in economically ravaged Niagara, N.Y. Despite higher labor costs, he’ll still produce silicon cheaper than in Asia because of less expensive energy. “We’ve known for years we’ve been blowing energy out the door,” Sims says.

The Castens deployed similar strategies at the labyrinthine
Arcelor
Mittal Steel
plant in East Chicago, Ind., one the largest mills in North America. Casten captured the 2000-degree Fahrenheit exhaust coming from the mill’s coke ovens, turning that into 1 million pounds of steam an hour and 95 megawatts of juice, starting in 1998. Together with three other projects at the mill, Arcelor Mittal saves $100 million a year in electricity costs.

RED’s next big customer is gypsum giant usg, which operates 17 energy-hungry U.S. plants that produce 8 billion square feet of wallboard a year. usg currently burns natural gas to heat its football-field-length ovens to 700 degrees to dry out giant slabs of gypsum and paper. RED is negotiating to work on two usg plants, one in the Imperial Valley of Southern California and one in Cloquet, Minn.

RED will spend $80 million on each of these plants to equip them with gas-burning turbines sized exactly for the factories’ loads. The turbines will displace purchased electricity while their 900-degree exhaust will get piped straight to the ovens. The exit gas from the ovens, which is 300 degrees and saturated with water vapor from the gypsum, will be used to boil propane to turn a turbine to produce another 12 to 15 megawatts. Each project will save the grid 30 megawatts. The water vapor at the California project, where water is scarce, will be captured for reuse. The combined system will run at 96% efficiency. “I could see us doing the whole line for usg,” Tom Casten says, although that would likely exhaust RED’s $1.5 billion capital pile.

Gray power may even improve the economics of the beleaguered ethanol business. A gallon of corn ethanol contains 76,000 Btu of chemical energy. Normally, it takes 60,000 Btu of fossil fuel to produce the crop and distill a single gallon. Installing Casten’s cogeneration process at an ethanol refinery cuts that to 25,000 Btu. “The story with ethanol that nobody is talking about is what happens when you do the energy all at the plant rather than pulling from the grid,” Casten says.